Big Banks and Me

In 2007 the Financial Crisis puzzled me. Then the giant Lehman Brothers bank collapsed in September 2008 and I got worried. Less than three weeks later President Bush dropped his free-market rhetoric and signed a $700 billion bank bailout and I was convinced: we were on the brink of disaster. If the Republicans would accept governmental intervention on this scale, the situation must be dire.

A few months later a Bill Moyers interview with Simon Johnson clarified the issues. Our big banks are too interconnected. If one falls, they all fall. Since banks are essential to the economy, when a big bank nears collapse, a bailout is necessary to prevent a “credit crunch” and complete economic collapse.

Well aware that the government will bail them out, the big banks make even riskier bets. The more they risk, the greater the profit. When those bets go bad, taxpayers are on the hook.

Moreover, Johnson argued convincingly that the big banks hold too much political power because they are so big, and they abuse their power. So I began reading Johnson’s The Baseline Scenario blog regularly.

I’m no financial expert. My bachelor’s degree is a Field Major in Social Sciences, with a focus on Political Science and Psychology. And my two years at Pacific School of Religion hardly prepared me to understand Wall Street.

But those studies did sharpen my moral sense. And I do have a logical mind. When experts break down complicated matters, I can analyze the logic of their argument and evaluate whether they are grounded in the moral values I affirm.

Johnson’s prescription made sense to me: no more too-big-to-fail banks. But I felt he was not attuned to political realities and was too harsh on the Obama Administration. Without a grassroots movement to cover his back and push him, it’s hard for any President to go out on a limb. President Franklin Roosevelt told some labor organizers, “I agree with you. Now make me do it.” Obama may well have felt the same way. Absent any such movement, I was hoping the Administration and Congress would stabilize the financial system with some strong reforms and lead us out of the Great Recession.

Then I read “Banking Regulator Calls for End of ‘Too Big to Fail’” by Pulitzer Prize winner Jesse Eisinger about a report from the Dallas Federal Reserve Bank attacking the role of the big banks in our economy. In particular, Eisinger’s image of big banks being like aspen trees with roots interwoven underground rang a bell with me. I sensed that if even the Dallas Fed is willing to go public with its outrage, perhaps some powerful allies will support a movement for fundamental reform.

“‘Living Wills’ for Too-Big-to-Fail Banks Are Released” reinforced my sense of urgency. The Democrats’ effort to establish a way for big banks to fail has a fatal flaw. It assumes that other big banks would be able to buy out a troubled bank. And the Republicans want to reverse even that weak reform effort.

So I began to research the issue intensively. What I learned scared and outraged me even more.

With their lucrative games in the paper economy, the big banks are suffocating the real economy. And they will continue to prolong the Great Recession until we persuade or force them to stop. But I also learned that many experts agree that no bank should be too big to fail. I reported on my conclusions in “Preventing the Next Big Bank Bailout” and “End Big Banks: Save Our Economy and Our Democracy.”

We can’t blame the big banks. By and large, they play by the rules. We need to change the rules. We need to transform our economic system. A good first step would be to make sure the big banks are small enough to simply go out of business. If we achieve that goal, we will have overcome their political power with a grassroots movement that can move on to other goals.

To do that, we must steadily increase our understanding of the issues and clarify how the big banks make life harder for ordinary people in their daily lives. So long as the big banks are so powerful, we won’t be able to grow a healthy economy.

We can no longer trust any expert. We have to think it through ourselves and help each other better understand these issues.

I’m enjoying this learning process and invite you to join me. What questions do you have? What thoughts do you have about these issues?

Soon I’ll launch a multi-channel Internet-based project rooted in a new website, EndBigBanks.org, as a resource for people who want to learn more about this issue. Hopefully we can build an informed network of individuals who would participate in a grassroots movement if and when it develops.